Bitcoin? What's that? I'm Confused
Using Wittgenstein's Ruler to make more Wittgenstein's Rulers
Information technology has given mankind the ability to measure all sorts of new phenomena, but those systems of measurement are only physically able to benefit those who are able to capitalize upon them. Pointing out the systemic inequalities of what Shoshana Zuboff describes as ‘Surveillance Capitalism’ or what Jaron Lanier describes as ‘Siren Servers’ is fairly straightforward, probably unworthy of a subscription fee, but what may be worthy of that subscription fee is what a mentor of mine in a former life, as a Process Safety Engineer in the oil industry, called ‘The Study of the Engineering that’s Not There’. I didn’t know it at the time in 2010 but this sage advice has stood me in good stead since I first gained a serious interest in Bitcoin a year later. Looking into what’s not on the drawing or in the documentation, but should be is lot harder than seeing what is there and describing it. This view of knowledge is similar to the innovation process itself. Miyamoto Musashi might have described this as ‘The Knowledge of the Void’ or ‘The Fifth Ring’, but that would also be the name of a certain Aberdonian oil industry PR Agency, which might be too much of a coincidence for now.
Since Bitcoin’s Genesis Block the main structural network change was the adoption of ‘ASICS’ hashing technology from 2013 onward. The capability to create new blocks requires the nodes in the Bitcoin network to solve a ‘hash puzzle’ according to a specific algorithm, which can be solved much faster using specific hardware. Since the development of these ASICS hashers, the benefit of the block rewards from the Bitcoin blockchain have been taken out of the reach of amateurs and hobbyists and into the hands of large industrialized enterprises, typically with access to cheap and abundant energy. This centralization of hardware, similar to that created by data centers following the first Dot Com Bubble, created a structural market incentive for hashers, in my own opinion, to limit the size of blocks, and therefore collect more rent from each block as a block reward rather than from transactions, which provide users more utility, as a fraction of total rewards for mining. This explains the economic incentives around the ‘big block’ vs ‘small block’ arguments better than social media does, at least.
ASICS, and the industrialization of Bitcoin, made the business of Bitcoin development process more adversarial. It created an industrial base to be fought over by business people seeking to gain differential advantage over their competition. Bitcoin itself now exists in three main competing forms, versions or ‘forks’:
Bitcoin™ ‘BTC’: the trademarked Bitcoin, modelling and selling itself as ‘digital gold’ with the highest current market capitalization that’s also therefore advertised the most. Bitcoin™ adopts a depth of capital accumulation strategy: they narrowed their focus, simplified and target a simple frame with a simple use case, backed by a large industrial base of hashers, owned by a few centralized businesses.
Bitcoin Cash™ ‘BCH’: a fork of the Bitcoin protocol created in August 2017 due to disagreements between developers and between miners about a suggested update to the Bitcoin protocol and its scaling strategy termed ‘Segregated Witness 2x’. Bitcoin Cash adopt a Goldilocks capital accumulation strategy: being more broad than BTC, but not so broad as to substantially impact hasher rents from block rewards, and thus put them out of favor with the prevailing Power Capital structure.
Bitcoin Satoshi Vision™ (BitcoinSV™) ‘BSV’: a fork of the Bitcoin Cash protocol created in November 2018, which again stemmed from a disagreement with respect to the scaling strategy. BitcoinSV™ favored putting no limits on the size of ‘blocks’ in the Bitcoin ‘block chain’, and in using what was already in the Satoshi Nakamoto Whitepaper to solve the engineering problem. The boldest aspect of the claim that was made by the proponents of the BitcoinSV™ fork was and is that Satoshi Nakamoto had already solved the scaling and infrastructure problem conceptually in his Whitepaper and that there isn’t and never will be a reason to deviate from it. BitcoinSV™ is not only the only fork of the Bitcoin protocol that follows every aspect of the original Bitcoin Whitepaper, but it also claims that the Bitcoin Whitepaper was issued as fundamentally sound and peer reviewed conceptual design a unilateral contract from which no deviation is desirable nor necessary. And from an engineering and scientific perspective all of this has turned out to be true so far. BitcoinSV™ adopt a breadth of accumulation strategy, seeking data-related use cases and creating new demand outside of the prevailing industry and market. BitcoinSV™’s breadth based strategy fundamentally threatens the narrative behind all current depth based strategies, including Bitcoin™’s.
The current market price of each version of the Bitcoin protocol at the time of writing is:
$39 000 / BTC or 134 BCH / BTC or 506 BSV / BTC
$290 / BCH or 0.0075 BTC / BCH or 3.8 BSV / BCH
$77 / BSV or 0.002 BTC / BSV or 0.27 BCH / BSV
As one might expect in a market of competing similar goods: there is animosity between these three ‘forks’ or factions. The ostensible public nature of the animosity is thus:
BTC claim that because they control the original Bitcoin development repository, have rights over the Bitcoin trademark and model themselves as ‘digital gold’ which should be tightly held or ‘HODLed’, their Bitcoin is the real Bitcoin. They claim that BCH is therefore a ‘soft’ asset and that BSV are ‘big blockers’ who make it more onerous and difficult to operate nodes. BTC views ‘Big Blocks’ as a centralizing influence, against the ‘decentralization’ principle.
BCH claim that Bitcoin is not ‘digital gold’ but rather ‘digital cash’ that should inherently scale more freely than BTC, but they still call the BSV faction ‘big blockers’ who make life hard for node operators and wish to centralize node operation.
BSV claim that Bitcoin is and always was what was specified in the Satoshi Nakamoto White Paper, the Bitcoin includes all aspects of that White Paper and that Bitcoin is neither ‘digital gold’ nor ‘digital cash’ but rather a digital ledger of both data ‘Bits’ and money ‘Coins’. They claim that BTC ignores the ‘Bits’ and isn’t even a ‘Coin’ described by Satoshi Nakamoto, and that BCH is a fudged solution to appease the ‘small block mafia’, benefiting centralized industrial hashers to the detriment of developers and customers. BSV claim that Bitcoin is neither gold nor money, but rather a commodity or a utility used to better assign value to data.
In addition to this there is a chap called Dr Craig Wright, an Australian computer scientist and cybersecurity expert, who claims himself to be Satoshi Nakamoto, the inventor of Bitcoin, leading the charge for BitcoinSV™, but, as one would imagine, his claims have been largely denounced and decried by the other two factions. One wouldn’t expect a cybersecurity expert to lose all their Bitcoins via a basic WiFi hack, for example. One would expect him to still have all the Bitcoins since the Genesis Block and be rich beyond imagination. Sadly, Dr Wright claims, this is not the case. Also given that Bitcoin rose in use, price and adoption in checkered circumstances, the door is open for those who wish to cast doubt and aspersions upon Dr Wright. All this sounds like a very stressful argument that few of us understand and few of us would dare to venture into lest there might be a serious profit motive for doing so. Therefore we need a sensible way to unpack this…
Inherent Correlation
On the surface the argumentation of Bitcoin™’s proponents appears to hold true. It has the much higher price, is the most widely traded on ‘cryptocurrency’ exchanges and it is most widely known. If you say ‘Bitcoin’ to the vast majority of people, including software engineers and industry analysts they will assume that you mean Bitcoin™, BTC. BTC have stripped down the functionality of Bitcoin to sheer simplicity to achieve an aim: to market itself as digital gold with the Bitcoin trademark, a vast market capitalization with many high profile and celebrity proponents, and built a political movement with national level lobbyists to influence nations to adopt Bitcoin™ as legal tender, to put Bitcoin™ in their corporate treasury, to treat Bitcoin™ as a hard asset, as digital gold. The flip side, the risk as I see it, comes from the fact that the governance structure of the Bitcoin™ Github repository is uncertain, at best. I would advise governments, corporate quality assurance professionals and law makers to look into that, because it currently forms the basis of an active law suit. Aside from these risks Bitcoin™ is working reasonably well, for what it is, in my opinion.
BTC match and frame themselves against the financial derivatives market and a financial system that they believe has behaved unjustly and has disenfranchised the poor and the youth. The ratio between the market capitalization of BTC and the outstanding global derivatives market, the first elephant in the room, is about 500-1, about the same as the ratio in market capitalization between BTC and BSV. Peter Thiel, with his Zero to One philosophy, could, in my many ways be likened to the Craig Wright of BTC, lamenting ‘the system’ itself as Craig Wright laments what BTC has become. Thiel frames Bitcoin as a way for the United States economy and for the global economy to anchor itself to a fixed, predictable asset and thus escape the moral hazard of the past and what he calls the ‘gerontocracy’: who engage in self dealing in the financial system to the detriment of the future and the future generations, the same sort of self-dealing that Craig Wright accuses Bitcoin™ developers of, in fact.
BCH frame themselves as a more liquid alternative to BTC that’s not a new digital gold, but rather digital cash that easier to spend and transact with. BCH, like BTC, is readily accepted on most cryptocurrency exchanges, and is therefore relatively easy to trade in and out of and broadly fulfills its stated objectives. BCH is jokingly derided by both BTC and BCH, but as it is directly related to both, does not bare the brunt of the scapegoating.
BSV, on the other hand, frame their value proposition directly within the Satoshi Nakamoto White Paper, a broad belief that Craig Wright is Satoshi Nakamoto and therefore Craig Wright’s views about intellectual property, capitalism and economics. BSV represents a substantially and radically different concept of what Bitcoin is, relative to BTC, BCH and the broader market in general. BSV uses unbounded block sizes, meaning that mining nodes are free to accept as many transactions and as much associated data as they choose to, and this incentives nodes to accept transactions quickly and cheaply rather than just mine new blocks, Simplified Payment Verification, described in the Satoshi Whitepaper as a means by which Bitcoin users can transact peer to peer payments in parallel, negates the requirement for ‘second layers’ such a ‘Segregated Witness’ or the ‘Lightning Network’. BSV has also re-factored the Bitcoin code-base to allow for Turing Complete Smart Contracts and horizontal infrastructure scaling. A ‘Satoshi’, according to BSV, is not ‘dust’ but rather the lower bound cost of parallel communication enabled by Bitcoin. This radically different understanding for what a ‘Satoshi’ is is the second elephant in the room: BSV doesn’t present Bitcoin as an alternative to fiat money, it presents Bitcoin as a commodity that coordinates data. This interpretation of what Bitcoin is, however, puts a much greater onus on node operator hardware and how nodes configure themselves within a ‘small world network’. It creates a great deal more complexity around Bitcoin, how it functions and the competence and investment necessary to ‘get started’ with it, but this complexity has the benefit of taking the structural rents that the network itself produces away from the ASICS hashers and towards developers and users. BSV presents what Satoshi created originally in a radical and fundamentally different light to that which most enthusiasts appreciated or understood in the beginning, but this also creates a barrier of basic understanding. Surely if Bitcoin is ‘for the people’ in a way that’s ‘radically disruptive’ it should be simple, right? It should stand against Wall Street, the banks, the Federal Reserve and whatnot, right? Well unfortunately not necessarily, in reality. In order to achieve the product vision in the Satoshi Nakamoto White Paper that allows for the sort of robustness, scale-ability and freedom that provides the most value to customers and developers, and therefore to understand Craig Wright himself, it is necessary to have a fundamental level of competence in these complex engineering decisions and separate the engineering from the industry politics and also from politics in general.
Craig Wright laments exchanges such as Binance, Kraken and Coinbase as ‘Bucket Shops’, laments the term ‘cryptocurrency’ itself, laments the term ‘blockchain’ itself (in the Satoshi Whitepaper it was described as a ‘block chain’: two words). For him and for BitcoinSV™, Bitcoin is a digital ledger that allows for data systems more broadly to coordinate at scale with a ‘rational’ pricing mechanism.
BSV’s and Craig Wright’s main problem, however, is that their problem is the same problem as everyone else’s problem, in that ‘the system’ is unfair, and that rational pricing in a morally hazardous world is hard to come by and even harder to implement. The ratio of price of Financial Derivatives to BTC (500-1) and BTC to BSV (500-1) is roughly the same and both are framing themselves, in terms of systemic rent seeking from morally hazardous behavior, in a similar place. In both pitching their language to be radically at odds with the prevailing unjust systemic asymmetries, in BTC deriding BSV as ‘crazy’ so BSV proponents deride BTC as a systemic injustice and deride those who believe that there are inherent asymmetries in capitalism itself as ‘crazy’. BSV proponents have their own politics in much the same way that Peter Thiel has his own politics. These politics are broadly ‘capitalist’ and are a certain flavor of classically liberal capitalist, following from the lead of Craig Wright, who most BSV proponents believe to be the real Satoshi Nakamoto.
The problem with classical liberalism, for me, is that it’s not the 19th century any more. Our systems have changed, the structure of governance has changed. Neo-liberalism in 2022, structurally in terms of how power works, is unrecognizably different from the classical liberalism of the 19th century. Peter Thiel gets this whereas Craig Wright doesn’t. And while we cannot solve the problems of injustice with more injustice, the problems of moral hazard with more moral hazard, nobody is completely wrong and nobody is completely right in these systems of ‘the flux of innovation’. Whatever system, whatever politics we believe in, they only have value in so much as they promote basic human values of mutual respect, personal integrity, high character and virtue: not just signalling these things but living these things such that life improves for all, taking into account the full picture of the existential reality we find ourselves in now: in the time of the proposed Great Reset, following the global Corona Virus lock-downs and extreme authoritarian measures, recognizing the world as it is now, not how we would like it to be. If Bitcoin exists, in whatever form, for any reason it’s to make our systems of money, power, risk management and government work better, such that human beings and the environment in which we live are in harmony and in balance with whatever reality we’re in. Both Craig Wright and Peter Thiel want this fundamentally, I believe, but they adopt different strategies in order to achieve the same aims, and when innovating, as Peter Thiel rightly states, the biggest arguments tend to be about the same thing, arguments are mimetic, like desire is mimetic.
People like Mark Fisher, Bernie Sanders, Jeremy Corbyn, Andrew Yang did and do present reasonable views about this as well, about ‘Capitalist Realism’. Peter Thiel also talks about the dearth of real left wing intellectuals today, those willing to challenge prevailing orthodoxies and think differently about the specific challenges of our age. And, with respect to innovation, it’s easy to copy and to meme, it’s hard to think from first principles again. There is no doubt that social media has become a toxic forum that mobs and silences truth tellers of all stripes and background, but while Craig Wright challenges orthodoxy technologically, politically and in business the applications on BSV copy existing social media, copy Ethereum NFTs, copy existing messaging apps, they appeal to existing enterprise, to existing academia, replicating the same thing from before when more is required to break the cycle of meta-violence. And rather than solve disputes in the market with better products in the hands of every day consumers, by unleashing the true potential of the platform that he has created outwith his own comfort zone, Craig has decided to settle disputes in court first, relying upon the existing structures of power that gave rise to the moral hazard that gave rise to Bitcoin adoption in the first instance. If BSV is truly a commodity or a utility as Dr Wright states then it’s no more nor less inherently capitalist and classically liberal than pounds of refined nickel or aluminium delivered to a warehouse in Shanghai or Hull at a specified date, and classical liberalism itself, capitalism itself require that all views from a standpoint of good faith, integrity and compassion are taken into account in order to increase knowledge, in order to innovate and provide substitute goods where existing markets and businesses cannot.
It’s this power dynamic and incoherence in values and expectations from all sides that is leading to unnecessary fear and to unnecessary conflict. Whatever side we’re on, we should believe fundamentally that there’s enough value to measure into existence, and enough innovative potential from this technology, as a whole, to provide for all, whatever our politics, whatever our profit motivations. We shouldn’t go looking for scapegoats, we should go looking for answers, and to find answers we cannot close ourselves off to the opinions of others due to our differences. We should embrace our differences, our uniqueness, in order to collaborate and build synergy where there was nothing before. If we do not believe this then mimetic conflict might spread faster than the beneficial change does. Let’s be salient of that and work to build peace and stability where we can first.
The Satoshi Genesis Block: Ethos and Telos
One thing that everyone still broadly agrees upon is that the financial malfeasance prior to 2008 was irresponsible and regrettable, and that the subsequent banker bailouts were counter-productive and only exacerbated the socio-economic problems globally. Some people say that Bitcoin is only what the Satoshi Nakamoto White Paper says it is, others what’s been trademarked as Bitcoin, for others it’s their own particular niche fork of Bitcoin that’s not even been covered in this article. Everyone involved in every fork of Bitcoin, in every narrative from every perspective of this story, is buying into the original story from 2009, from a different time when no one would have believed you if you’d told them how the next 13 years would pan out, but they did pan out that way. Whether Craig Wright is Satoshi Nakamoto or not, whether Peter Thiel or Elon Musk are right or not, Bitcoin was released because the world needed and still does need better systems to manage all sorts of risks, all sorts of complexity, not just financial complexity. Everything that’s happened since the Bitcoin Genesis Block just shows us that we need that now more than ever before. Everyone’s adopted a strategy to address this larger moral hazard problem, and somehow, confusingly to those looking from the outside in, that’s also put Bitcoin, which is, to me, everything that’s happened since the Genesis Block, at odds with itself. All those involved in Bitcoin adapted to the novel circumstances, for better or for worse, as best as we could should remember that our real enemies are common, that the real structural malfeasance, the real dilapidation and corruption exists in the multi-$quadrillion real world, not the multi-$trillion digital ledger/currency world, not on Twitter nor on Discord. And save for a tiny minority of genuinely bad actors looking to use this technology with genuinely criminal intent, and with an intent to derail all innovation completely, we’re all mostly on the same side, engineering solutions to the same sorts of problems.
Whether or not Craig Wright is or is not Satoshi Nakamoto is something of a moot point relative to the size, power and socio-economic possibility unleashed by this eminently scale-able infrastructure solution presented by BitcoinSV™. And all those who have deliberately acted in bad faith against the development of this technology do deserve to be taken to court and to be judged accordingly. But whatever happens in the markets and the courts, for me the real value of this technology is to rebuild trust in the economy, to address large scale structural moral hazard, to make resource allocation of all kinds much more accountable and to price risk better for everyone in order to help everyone to make better choices, give everyone better jobs and better opportunities. And the best first opportunity to make the best choice is not to turn on each other and not to forget how and why this story began in the first place. No matter how much money the power brokers at the World Economic Forum or at COP26 spend on what, no matter what Alex Jones or Joe Rogan say about it: if we don’t harness the maximum potential of this technology in order to deploy people and resources to their best potential, then that will be the real crime, and our real worst enemies will have just been ourselves all along.